Kudos to Schumpeter for bringing up this topic. This is, of course, a bit of a lost cause in current environment, but somebody has to remind people of the truth. People naturally want something that promises them instant gratification instead, such as "socially responsible" profitable corporations. Not the kind of responsibility that states that one ought to do his or her job well. Rather the kind that would fill up your 401(k) and pay a Chinese laborer twice the NY State minimum wage. And there wouldn't be any outsourcing from the developed world, naturally, because keeping armies of unproductive Facebooking people on a payroll is the corporate responsibility after all. Naturally, if only we educated greedy fat cats running those corporations to be more responsible, we'd all start eating organic food all the time, and there wouldn't be any more poverty. There's no reason to justify these allusions with rational arguments because the fortitude of moral outrage is more important than boring math. Did I forget anything? Maybe only the desire to get a new plasma TV and a new forgiveable mortgage for Christmas.

Adam Smith wrote a lot of things, also that, when two entrepreneurs meet, "the conversation ends in a conspiracy against the public, or in some contrivance to raise prices" (Book IV of Wealth of Nations).
Not to mention the role of Providence in getting a good outcome from self interest. It is not good to read an author like Smith only through our contemporary criteria. He was a Scottish philosopher, influenced by social aristotelism, and a man of letters, like his friend David Hume, not a mere father of deregulation. Not really.

We are using the word "profit" as if it were synonomous with the word "benefit". Firms, the division of labor and profit exist to benefit the population. That concept was Smith's great epiphany; these companies are directly purposed to bring benefit to the people in them and around them, and Capitalism seems to do that best.

Let us say that companies exist to bring benefit to the population. If companies were to work to that purpose they would be much more apt to do the things that they are designed for while also being aware of their effects on society.

"In the most benighted areas they will sometimes build roads and schools to keep the locals friendly. They will brag about such acts, but they are simply a cost of doing business, not an instance of corporate altruism."

As for this statement, I would like to add that most infrastructures in Africa are built by states, through grants or loans paid to local governments. Sometimes, European (Italian for sure) and Chinese firms are involved in such projects, and they really do not pay any big "cost", whereas they get considerable profits.
Secondly, what I do not understand is why Schumpeter does not write a single word on democracy in Africa and the respect of human rights. Maybe they would hinder firms' activities? I really do not think so. Maybe they just would let local governments have the chance to build up some public interventions that Schumpeter would definitely dislike.

In the shadow of disaster caused by shortsighted financial corporations, this article seems foolish at best. Corporations act out of self interest and rarely pay much attention to the economy. Their focus is on their own markets. Unchecked they can and do wreak havoc on societies which sanction them. Their influence on governments is frequently counterproductive to the essential purpose of govt, which is to promote the general welfare. Left to their own devices corporations would have people serve the economy, which they define as their own businesses. It is not at all apparent that the long term health of macro economies, which is in their enlightened self interest, factors into a corporation's business decisions. Unless they're harnessed, they're dangerous.

I appreciate the dialogue, as well as the perspective. CEOs and corporate executives already do a lot of work for society. And the last two paragraphs are great.

But I still think Ms Bernstein misses the point. The risk is that the least responsible company will have the best bottom line, because they will capture environmental or social externalities most effectively. Another risk (in the US, certainly) is the risk of policy bias resulting from campaign donations-- Congressmen want to keep their supporters happy, and they have to in order to stay elected.

Obviously, there are benefits to the market system. But finding a way to keep some sort of corporate social responsibility in the equation is necessary not only for national flourishing, but also for international flourishing.

If the "rules" require taking care of people and the environment, then one hopes that companies will be able to compete to deliver the best product at the lowest price given those constraints. The risk is when the rules are set up to allow for massive, untested water contamination (or other social and environmental risks).

Thats my perspective, anyway. I agree that the market system is the most efficient distributer of goods, its just a question of how prices and rules are set up within that system, so that the poor (as well as the rich) have a shot at a little dignity and something resembling a community life, to support their children and others connected to them.

Its the government's role to direct corporate profit seeking toward the direction that benefits society, its not the government's role to tell the corporations to not seek profits or to focus on directly benefiting society.

Although I somehow feel this is a timely article, sometimes it annoys me how overboard the environmentalists and such are just chokingly anti everything.
Despite that I cant help wondering where Ms Bernstien has been for the last year or so. Whilst the whole western world has been reeling from the capitalistic excesses of the unregulated free market, moreover, we are still in doubt about whether the worst is over or not.
Let there be no mistake, all brought about by a complete disregard for the benefit of the "people" around them. So much for the "invisible hand".
It seems untimely to air such opinions, maybe in another couple years.

BTW : The best part of the article was Steve Coogans joke, brilliant, followed closely by the the one about "voluntary buying" not bad.

"Anti-corporate activists sometimes claim that big companies are mightier than governments. This is absurd. Governments can pass laws, raise taxes and declare war. Companies have virtually no powers of coercion."

Oh, really? Take a trip to southern West Virginia and tell me that Massey Energy, a coal company giant, has "virtually no powers of coercion." Massey certainly has WV state government in its pocket. It has nearly unlimited power in southern WV. Massey has caused absolutely astonishing levels of irreparable damage to the land, the health and well-being of the residents, and the long-term economy of WV. And WV state government gave them - and continues to give - their full support. Why? Because Massey knows how to play the political game. And because Massey knows how to play the game, they have virtual immunity to the law. That's power.

Just because governments make the rules doesn't mean that they are the most powerful entity. Companies can influence government very easily, effectively making themselves the more powerful of the two. This is especially easy when you've got a corrupt government run by idiots, which is the situation in WV.

Also:
"If people do not voluntarily buy their products, they go bankrupt. Business is thus extremely sensitive to public opinion."

Wrong again. You forget the fact that not all companies operate this way. Massey Energy survives because people all over this country use the electricity that is generated with their coal. And most people do not wonder about either the source of this electricity or the consequences of using electricity from this source. These customers do not make a conscious decision to support Massey Energy - rather, they simply end up supporting Massey indirectly and inadvertently. Public opinion is barely affecting Massey at all. If a company is big enough, rich enough, and powerful enough, all it needs to sustain itself is the support of the other big players - government, other big companies, etc. The "public" is of little to no consequence to a company like Massey.

Although I somehow feel this is a timely article, sometimes it annoys me how overboard the environmentalists and such are just chokingly anti everything.
Despite that I cant help wondering where Ms Bernstien has been for the last year or so. Whilst the whole western world has been reeling from the capitalistic excesses of the unregulated free market, moreover, we are still in doubt about whether the worst is over or not.
Let there be no mistake, all brought about by a complete disregard for the benefit of the "people" around them. So much for the "invisible hand".
It seems untimely to air such opinions, maybe in another couple years.

BTW : The best part of the article was Steve Coogans joke, brilliant, followed closely by the the one about "voluntary buying" not bad.

And no, I did not feel any genuine African perspective from this economist either. A sad comment considering I'm an American living in a far less developed African country than SA, but one which would be representative of the majority.

Yes, Africa needs businesses, but more specifically, it needs businesses created by Africans so as to keep that generated wealth within the continent. Too often, major companies come into these countries, and they also bring in their own foreign employees. So, let's be careful to note the criteria of business creation or development as well. More foreign business in Africa will not help Africans, and therefore, any developments or benefits that arise will only be short-term.

I think one important aspect of the relationships between local societies, companies and the global markets is that they must all be connected well to serve eachother. In an unarticulated economy where the local populace has no capability of increasing demand for the company, the company has no incentive to pay legitimate wages. The employees only serve the company, which leads to a twisted system that gives you sweat shops, child labor, abusive employers and companies that do not serve the local populace, due to the lack of incentives for it. This allows the companies in developing countries to pay subsistence wages that enslaves their employees essentially. The charity arms of companies function more as a PR boost than to help the local populaces that work in factories. So the companies are serving there own interests with the Non profit arms that they begin either way.

So instead of having more companies, the local populaces need progressive development where they can consistently increase their impact on demand, which would force businesses to actually work with the people.

When I give money on behalf of my business, it is for a tax credit or deduction, not because I feel that my business is making a contribution to society. The motive is the greedy hand of government which will eat up my profits.

My choice of charities or causes is governed by a government framework. Fortunately, I can choose to give it to a political party that wants to legalize marijuana. My solace is that I'm giving the social right wingers (e.g., pro abortion, pro incarceration) a battle of wits against prohibition while encouraging the economic right wingers (e.g. lower taxes, smaller government).

There is a general misconception that CSR is charity. This viewpoint stems from a time, decades ago, when corporations that wished to do something 'extra' for the benefit of society engaged in straightforward philanthropy.

Corporate Social Responsibility is not about giving away money. It is about making investments (for example in the community, or in green technology) in such a way that the long-term gains will be greater than the initial investment. When implemented correctly, CSR actually increases profits.

Many large corporations are implementing successful, profitable CSR programs, the details of which can be found in their sustainability reports. However, since CSR is largely about long term profitability, those who are mainly interested in short term returns tend to focus only the initial costs, which they are quick to label as 'charity'.

Hopefully the events of the past few years will have convinced more people that long term, sustainable solutions are ultimately better, not only for society and the environment, but also for businesses, than strategies aimed at making a fast buck.

"And there is no choice in this matter. Just look at France. The 'plebs' will tolerate a lopsided, asymmetric performance of justice for only so long...before they revolt."

You mean the country that is on "boil" jus for a retirement age increase of two years. Most of Whose populace support the "reform" (it's a joke to call it that it's more like tinkering or tweaking!) AND the PROTESTS! And whose Parliament deliberates for months on what garbs and accoutrements it's subjects can wear, I mean what's next what lingerie they should wear?!

Thanks but no thanks! I will stick to US of A. For now. I highly doubt whether GenX or GenY are goonna enjoy the same lifestyles that the baby boomers, who arguably had the best living standards during the prime of their life of all the people in the US history, did. But I digress.

The first priority are the dissatisfied locals in distress than the environment.If gorillas or any other animal species is rescued from endangering at the cost of putting a strain on basic necessities of human lives would incense these locals. They would never care about environment unless they are provided with basic needs such as shelter and food. Protecting nature and let humans suffer as the result is absurd, first comes a human than any other form of life. keeping this in mind is also important for capitalists as their, more or less, aim is to maximise profit, and this can only be achieved by keeping people satisfied and happy.

Well, while I think the Economist has a lot of merits, this is exactly the kind of article which makes me reappraise the value of the journal. The author may call himself Schumpeter, but I do not think this would sound exactly as a compliment for the famous economist, for the following reasons:
1) the comparison between corporations and Beckham underlines a kind of mentality which is dangerous, to say the least. Indeed, while knowing how to kick a ball is not necessary in order to be a good scientist (but Beckham himself has to be clever enough to know what a ball is, in order to kick it), stating that companies benefit society for their mere existence means that using child labour and destroying forests may be considered as "benefits". Quite hard to say, isn't it?
2) Saying that "companies have virtually no powers of coercion. If people do not voluntarily buy their products, they go bankrupt" is not only a simplistic statement: it is often false. In many places of the world firms have not only enough monopolistic power to sell at the price they want, but they also hire workers at wage conditions that cannot be discussed. Again, the statement totally forgets the role of advertising and the tons of studies that have underlined how needs may be induced, and therefore purchases conditioned, not "voluntary".
3) Not Karl Marx or Stalin, but Adam Smith - the father of classical economics - wrote about the importance of moral sentiments (to which he dedicated a Treatise published in 1759), the perspective of the impartial spectator which we surely could not find in many firms nowadays. Was also Adam Smith "incomprehensible” while writing on moral virtues? And did not Coase win a Nobel prize for economics, writing on the possibility to use market contracts in order to reduce negative externalities such as pollution?
4) Writing that "the companies that are so brilliant at selling the fruits of capitalism are seldom much good at popularising the system that yields them" is contradictory, if we follow the rule for which we should talk only of measurable things. How do you measure a system? How could a firm generalize the positive value of private activities if not taking into account general definitions and criteria the author does not seem to recognize in the moral field?
5) Maybe not all companies are not charities but a lot of charities are companies, and the idea that the market cannot be used for moral and human purposes implies denying the results we owe to Amartya Sen and his observations on capabilities, to name another Nobel prize.

Adam Smith believed in self-interest not greed. The problem is that in order for markets to work properly they need two things: honesty and transparency. Until there is some way to ensure that product claims are what they say, markets will never work properly. Currently, the markets that work best are those where the product is cheap and it is easy for consumers to switch.